Quick Answer
Marketable title is title that is sufficiently free from substantial defects or reasonable doubt that a reasonable purchaser, informed of the facts and the applicable law, would be willing to accept it. The legal standard for marketability varies by jurisdiction and is often defined by state law or court decisions.
In real estate transactions, the purchase contract typically requires the seller to deliver marketable title. But what does that mean in practice?
Clear Title vs. Marketable Title
While related, clear title and marketable title are not identical concepts:
- Clear title generally means the property is free from liens, judgments, or claims. It is a practical description of title condition. Learn about clear title.
- Marketable title is a legal standard defined by statutes, court decisions, and the purchase contract. It means the title is acceptable to a reasonable buyer under the law.
A title can be clear without being marketable, and vice versa, though in practice they usually align.
Example
A property has an old recorded easement that allows a neighbor to cross the backyard. The easement is valid and known. The title is clear (no unresolved claims), but the easement could make the title unmarketable if the buyer expected exclusive use of the backyard. The purchase contract's marketability clause determines whether the buyer must accept the easement or can object.
Does Every Easement Make Title Unmarketable?
No. Most properties have some easements and restrictions. What matters is whether the specific easement or restriction substantially impairs the property's use or value. A utility easement along the property line is usually not a marketability problem. An easement that prevents construction in the entire backyard might be, depending on the buyer's intended use.
Why Does This Matter in a Purchase Contract?
Purchase contracts typically give the buyer the right to object to title defects and demand cure. If the seller cannot deliver marketable title by closing, the buyer may be able to terminate the contract and recover earnest money. Understanding the marketability standard in your contract helps you know your rights and obligations. Learn about the process from opening title to closing for context on when these issues arise.
Key Takeaway
Marketable title is a legal standard that goes beyond simply having clear title. It means the title is acceptable to a reasonable buyer under the applicable law. The purchase contract defines the specific standard for your transaction.
FAQs
Who determines whether title is marketable?
Typically, the buyer's attorney or the title company provides an opinion on marketability. If there is a dispute, a court may ultimately decide whether the title meets the legal standard for marketability.
Can I waive the marketable title requirement?
Yes, a buyer can agree to accept title with known defects. This is sometimes done in certain investor transactions or when the buyer is aware of and accepts the condition. However, waiving marketability is a significant decision that should be made with legal advice.